Entrepreneurs encounter a myriad of risks, regardless of the amount of experience they hold. Notwithstanding the potential effects of economic turbulence, sudden financial instability arising from family issues, for instance, can also force a business owner to give up the business and cash out. An exit plan is, therefore, crucial.
Hilton Smythe, the UK’s leading experts in business sales shed light on the significance of an exit plan and why every entrepreneur should have one prepared in advance.
What Is A Business Exit Plan?
A business exit plan is a strategy for how a business owner will sell their business. This may include plans for how to find a buyer, how to negotiate a sale price, and how to manage the transition of ownership.
An exit plan allows you to reduce or liquidate your stake in the business and make a profit where possible, limiting your losses. It’s important not to assume that an exit plan is in place solely for failure, as many business owners can start their company with the intent of leaving.
What Does A Business Exit Plan Look Like?
There are several strategies you can choose when it comes to your exit, and ultimately, it depends on the reason for leaving and your goals.
here’s no timeframe when it comes to an exit plan, as this can depend on a range of things, such as investors – however, the preparation allows you to act quickly when you need to.
Merger and acquisition: Mergers and Acquisitions involve selling your business to a different company or merging and are especially beneficial for start-ups. A merger or acquisition can be an effective business exit strategy, allowing you to receive a payout for years of hard work.
If you opt for a merger:
- Ensure that you have a good business broker who can help you find the right buyer and negotiate a fair price
- Prepare for potential due diligence and financial scrutiny on the part of the buyer
Acquihire: Acquihire is a business exit strategy whereby a company is acquired to hire its employees. This is usually done when the acquired company is struggling financially and the acquirer is interested in its talent pool rather than its products or services.
Acquihires are becoming more common as the war for talent rages on.
If you opt for an acquihire:
- Have a clear understanding of the value of your company’s talent since that will help you set a fair price for your company.
- Ensure that the company you’re selling to is a good fit for your team.
There should be an excellent cultural fit, and the company should be able to provide your team with the resources they need to be successful.
Liquidation: If you are considering selling your business, liquidation may be your best exit strategy, especially if you anticipate insolvency or bankruptcy. Liquidation is selling all of a company’s assets and using the proceeds to pay off creditors. This type of sale is typically executed when a company is insolvent or facing bankruptcy.
If you opt for a liquidation:
- Hire a professional liquidator to handle the sale of your assets.
- Notify your creditors that you are planning to liquidate your business.
Finally, you will need to file the appropriate paperwork with the court.
Once you have taken these measures, you can start liquidating your company’s assets, including inventory, equipment, and real estate.
Protect Yourself In the Long Run With An Exit Plan
The importance of an exit plan cannot be overstated in today’s business world. Regardless of how well your business is doing, there is always the potential for things to take a turn for the worse. Many factors can lead to financial failures, including but not limited to; recessions, calamities such as the COVID-19 crisis and government policies.
However, any loss can be reduced pre-emptively with an exit plan that could provide a roadmap for how a business can protect itself in the long run, should things go south.